A majority of Americans may be underprepared for their financial futures.
provided by Patrick D. McNally
Taking control of your financial future may be even more important for women than it is for men. Here’s why women need to invest and save actively.
The earnings gap.
Even today, men tend to earn more than women. A fresh 2008 survey of retirement savings trends conducted by Hewitt Associates, a global human resources consulting firm, found that the women worked they surveyed earned an average of $57,000 annually, compared to $84,000 for men.1 The average male employee in the study therefore had the chance to defer greater amounts of salary into a company retirement plan, while the average salary of the surveyed female employees sometimes wasn’t high enough to trigger a company match.Time out of the workplace.
Men don’t usually put their careers aside to care for young children (or family members with special needs). Traditionally, women have been the ones who have taken time out of the work force for these responsibilities.
If a woman relies on a company retirement plan to accumulate retirement savings, this time out from the workplace can amount to a financial setback. A male employee may contribute to a 401(k) plan year after year for 20 or 30 years or more, and his contribution levels may increase as his salary increases. If a woman leaves the workplace for a few years (or more), her retirement nest egg still compounds, but the steady salary deferrals to a 401(k) plan cease. When she retires, she may have less of a nest egg than her male counterpart if she just relies on the company retirement plan as her primary retirement savings vehicle.
This is a compelling reason for women to build their own investment portfolios, in addition to participating in employer-sponsored retirement plans.
Divorce may mean that a woman has to “start over” financially.
Many women find that a “fair and equal” settlement is not an equitable settlement. When the husband earns much more than the wife, all kinds of decisions ride on the stability of the husband’s salary – the neighborhood the couple or family can afford, what school the kids attend, and so on. When that big salary is gone, the woman faces a reduced lifestyle, and may dip into her savings to maintain financial equilibrium.
More importantly, she may not have the earnings potential her husband has. Things can get particularly tough when the wife is a key employee at a business or professional practice her husband started years before the marriage. After a divorce, the husband may retain the business and the bulk of the business assets, regardless of the integral role the wife played in growing and running the company. Will she want to work alongside her ex-husband? Probably not. So the stable job she had is a memory, and a career change and a move may be next.
This is why divorce financial planning is so important for many women. Women need to walk away from a divorce not just with an “equal” settlement, but with an investment portfolio and a financial plan personalized for their needs and goals, so that they can (re)build wealth on their own.
Women outlive men.
On average, women live five years longer than men; in fact, the Labor Department estimates that almost 90% of women will outlive their husbands and spend a portion of their retirements managing their own finances.2
A woman who retires alone may face a very long retirement: if you leave work at 62, it may last 20 years or longer, with only about 30% of your income coming from Social Security. (That’s if Social Security is still around.)
The Hewitt Associates study estimated that women’s retirements will average 22 years, compared to 19 years for men. Factoring in projected increases in healthcare costs, it concluded that women need to save 2% more than men annually over 30 years to maintain their standard of living when they retire. If a woman earning $57,000 contributes 4% to her company retirement plan annually over 30 years instead of 2% (that’s $95 more a month), the study estimates that she’ll have an extra $81,000 at her retirement date.1
Take control of your finances.
The best antidote to worrying about the financial future is planning for it. Investing to build wealth apart from work – and working with a qualified financial advisor – is a great move. If you want to invest conservatively, you can find strong investment choices with the potential to outpace inflation. Whether your life is stable or changing, talk to a financial advisor today and learn about the moves you can make for a comfortable financial tomorrow.
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
1 - baltimoresun.com/business/investing/bal-bz.women10jul10,0,5561753,print.story [7/10/08]
2 - msnbc.msn.com/id/15528502/ [11/9/06]